The year 2022 was characterized by a constant stream of news concerning student loans.
The year 2022 was chaotic for both the loan industry and borrowers due to factors such as the Biden administration’s forgiveness plan, which was announced, then paused, and is now held up in court, as well as the increasing interest rates and ongoing payment pauses.
Get ready for a possibly unpredictable 2023 as a student loan borrower, as it seems that there will be no slowing down. Expect news related to your student loans that may have both positive and negative implications.
What You Need to Know About Student Loans for 2023
If you’re finding it challenging to stay updated on all the recent changes surrounding student loans, don’t worry. Our aim is to assist you. We’ve compiled a list of four crucial facts about student loans in 2023.
1. The Student Loan Forgiveness Program Hangs in the Balance
The Biden administration announced a student loan forgiveness program in August 2022. If you have a federal student loan and earn less than $125,000 per year (or $250,000 if filing jointly), you may be eligible for $10,000 in loan forgiveness. Pell Grant recipients may be eligible for $20,000 in forgiveness.
The U.S Department of Education had received over 26 million applications for forgiveness, with 16 million of them already approved before the application was closed due to a legal challenge against Biden’s plan.
In February, the U.S. Supreme Court will hear oral arguments regarding two ongoing cases. The Biden administration is optimistic that its plan will be successful in court, however, borrowers will have to wait until 2023 to see if they will receive $10,000 of loan relief.
2. Student Loan Payments Will Return
In November, the Biden administration announced the eighth extension of the federal student loan payment pause due to the ongoing litigation which caused uncertainty. This pause has been in effect since March 2020.
The U.S. Department of Education has announced that this extension will remain in effect until 60 days after the litigation has been resolved. If the forgiveness plan is still being challenged by June 30, 2023, student loan payments will resume 60 days after that.
Assuming there are no further unexpected delays (which is always a possibility with this program), borrowers can anticipate resuming payments by late August 2023 at the latest.
The payment pause for loans backed by the U.S. Department of Education includes Direct Loans, subsidized and unsubsidized loans (also known as Stafford loans), Parent and Graduate Plus loans, and consolidation loans.
If your Federal Family Education Loans (FFEL) and Perkins loans are held by the federal government, they are eligible for the benefit. However, most of these loans are held by private companies, so they cannot be covered by this benefit.
3. Interest Rates Will Continue to Rise
The interest rate for federal student loans is 4.99% at the end of 2022, which is higher than the 3.73% interest rate of the previous school year (2021-2022). The government updates the interest rates every July, and they have been increasing since they dropped during the pandemic.
In late December, the federal funds rate was at 4.33%. This rate usually affects all lending interest rates, including those of student loans. It is anticipated to keep increasing.
Private student loans, which have interest rates that are higher than federal loans, may also be impacted. The fixed rates offered by lenders currently vary from approximately 4% to 16%.
4. Scammers Will Continue to Prey on Student Loan Borrowers
Due to the chaos surrounding student loans, scammers are taking advantage of the situation. The Federal Trade Commission has returned millions of dollars to borrowers who were victims of student loan forgiveness scams in recent years.
Some companies use official-sounding names like “Student Debt Relief Group” and falsely claim to be affiliated with the Department of Education. They charge upfront and monthly fees, supposedly to help pay off the borrower’s loans, but it’s actually a scam.
The Federal Trade Commission is actively fighting against scammers, but the scammers have not been completely eliminated yet. As a borrower, it is important to exercise caution when dealing with any “debt relief” company that:
- Asks for upfront fees. They’re illegal.
- Promises immediate loan forgiveness.
- Asks to provide personal information.
- Pressures you to sign up for their service.